Question

South Sea Baubles has the following (incomplete) balance sheet and income statement.

BALANCE SHEET AT END OF YEAR
(Figures in $ millions)
Assets	2018			2019			Liabilities and Shareholders' Equity	2018			2019
Current assets	$	100		$	190		Current liabilities	$	70		$	90
Net fixed assets		900			1,000		Long-term debt		650			850

INCOME STATEMENT, 2019
(Figures in $ millions)
Revenue	$	2,000
Cost of goods sold		1,080
Depreciation		400
Interest expense		250

a&b. What is shareholders’ equity in 2018 and 2019?

c&d. What is net working capital in 2018 and 2019?

e. What are taxes paid in 2019? Assume the firm pays taxes equal to 21% of taxable income.

f. What is cash provided by operations during 2019?

g. Net fixed assets increased from $900 million to $1,000 million during 2019. What must have been South Sea’s gross investment in fixed assets during 2019?

Please HELP with question e. and f.

Answer 1

(e) -- What are taxes paid in 2019? Assume the firm pays taxes equal to 21% of taxable income.

Answer -

Computation of Taxes paid in 2019

	Particulars	Explanation	Amount ($)
I.	Revenue	Given in question	2000
II.	Cost of goods sold	Given in question	1080
III.	Depreciation	Given in question	400
IV.	Interest expense	Given in question	250
V.	Taxable income	I - II - III - IV	270
Taxes paid in 2019		V * 21%	56.7

.

(f) -- What is cash provided by operations during 2019?

Answer -

Calculation of Cash provided by operations during 2019

	Particulars	Explanation	Amount ($)
I.	Net income	Taxable income - Taxes paid = $270 - $56.7	213.3
II.	Depreciation	Given in question	400
III.	Increase in current assets	$190 - $100	90
IV.	Increase in current liabilities	$90 - $70	20
Cash provided by operations during 2019		I + II - III + IV	543.3